COLOMBO, April 7 (Reuters) - Sri Lankan shares rose for a third straight session on Thursday to post their near seven-week closing high, as retail investors bought beaten-down stocks, though continued foreign outflows on worries over macroeconomic stability weighed on sentiment.

Foreign investors offloaded a net 197.4 million rupees ($1.36 million) worth of equities, their sixth straight session of selling, and extending the year-to-date outflows to 3.24 billion rupees.

The benchmark stock index ended 1.06 percent, or 65.08 points, higher at 6,230.19, its highest close since Feb. 19.


"It has been mainly retail buying. Retail investor interest has been a bit high on fallen shares. They feel this is the best price (at which) they can enter into the market," a stockbroker said, asking not to be named.

Turnover was 804.04 million rupees, just above this year's daily average of 791.1 million rupees.

Analysts, however, said investors are cautious about macroeconomic uncertainty after a rating downgrade and unclear capital gains tax.

Sri Lanka on Friday postponed a plan to reintroduce capital gains tax by six months after the move threatened to dent foreign investor sentiment.

Stockbrokers said the concern now is how the government is going to impose the tax, rather than the tax itself.

Higher market interest rates and higher borrowing by the island nation facing a balance-of-payments crisis have also weighed on investor appetite for risky assets, dealers said.

The average weighted prime lending rate has risen 84 basis points to 9.19 percent through Friday since Feb. 19, when interest rates were increased by 50 basis points, central bank data showed.


Investors preferred fixed interest rate-bearing assets over shares due to a rise in interest rates.

Analysts and economists worry slower growth could reduce corporate earnings of some listed firms.

Shares of conglomerate John Keells Holdings Plc jumped 1.27 percent, while Carson Cumberbatch Plc rose 0.85 percent and the country's biggest listed lender, Commercial Bank of Ceylon Plc, gained 1.62 percent.

The market will see subdued trade in the coming days due to the Sinhala-Tamil new year on April 13 and 14, traders said. ($1 = 145.0000 Sri Lankan rupees) (Reporting by Shihar Aneez and Ranga Sirilal; Editing by Subhranshu Sahu)